§1639 Requirements for Certain Mortgages

Summary

Requires lenders who make certain high-cost home loans to give clear, easy-to-read warnings and loan facts, and to follow many limits on loan terms. Lenders must give two big warnings: that the borrower does not have to finish the loan just because they got the papers or signed an application, and that the lender will have a mortgage on the home and the borrower could lose it if they don’t keep up payments. Lenders must also show the annual percentage rate and the regular monthly payment. For fixed-rate loans, show the APR and the regular payment. For other loans, show the APR, the regular payment, a warning that payments and rate may rise, and the highest possible monthly payment based on the maximum allowed rate. These disclosures must be given at least 3 business days before closing. If terms change so the papers are wrong, new disclosures are required. A consumer-initiated phone change is allowed only if the lender later gives written new disclosures and both sides certify that the change was made by phone, no later than 3 days before closing. A lower-rate second offer can close without waiting. The agency that supervises these rules can allow short-term changes for true emergencies. Lenders must follow many protections for borrowers. No prepayment penalty is allowed, and any interest refund must be at least as favorable as the “actuarial method.” Interest cannot go up after default. Loans can’t have a scheduled payment more than twice the average of earlier payments, unless payments match a borrower’s seasonal or irregular income. Loans may not let the loan balance grow because payments don’t cover the interest (no negative amortization). Lenders may not roll more than 2 scheduled payments into the loan at closing. Lenders must consider a borrower’s ability to repay (income, job, and debts) and can’t base approval only on the house. Payments to contractors from the loan must be paid to the homeowner or jointly, or put in a third-party escrow agreed to in writing. Lenders can’t tell people to stop paying old loans to get a new one. Late fees are limited to 4% of the missed payment, must be authorized in the loan papers, can’t be charged until 15 days after a due date (30 days if interest was paid in advance), and only once per missed payment. Acceleration (demanding full repayment) is allowed only for missed payments, due-on-sale, or a major nonpayment violation. Lenders may not finance certain points or fees. Violating these rules is treated as failing to give required disclosures. Payoff balances must be free on request and given within 5 business days (a reasonable fax or courier fee is allowed if disclosed); after 4 free requests in a year a reasonable fee may be charged. Borrowers must get counseling from an approved counselor before the loan closes, and the counselor must confirm the required disclosures were given. If a lender in good faith makes an unintentional mistake, the lender can avoid penalties by fixing it quickly: within 30 days after closing (if found then) or within 60 days after finding the error, with notice, repayment, and changes that either make the loan comply or otherwise benefit the borrower.